The benefits of me using a Stocks and Shares ISA now are just as high as they were a decade ago. It allows me to shelter the stocks I own from tax implications. This includes capital gains tax and dividend tax. When I’m trying to build a portfolio worth £1m, the advantages with the ISA can really help to speed up reaching my goal. If I had to start today with just £150, here’s how I’d go about it.
My investing strategy
I’m going to assume that I have a regular stable income that allows me to allocate £150 a week to investments. Month one is the current point I’m at, with four weeks of accumulated income (£600) ready to go.
Putting away some money each week gives me a huge amount of flexibility to take advantage of whatever opportunities the market has at that time. However, if I miss a few weeks for whatever reason, I’ll also be able to simply top up holdings in any of my favourite stocks that I believe in for the long term.
Therefore, my investing strategy would look something like this. One week I note that a poor trading update has pushed down a growth stock by 10%. However, I’m optimistic about the outlook for the business, so I snap up some shares.
Another week, I don’t have time to go through the market in detail. On this occasion, I decide to buy more shares in the company. This allows me to average-in my buying price. If I buy the stock on a handful of occasions, it’ll give me a much smoother average price, rather than committing everything in one go.
Letting time do the work
Following this strategy over time is the key to enabling my ISA to grow in value. As years go by, I’d hope that the stocks I own appreciate in value. The gains year-on-year can compound, growing my pot even quicker.
When I decide to sell a share, I also benefit from not having to pay tax on the profits. This allows me to use the full amount to reinvest into a different company and not lose anything to the taxman. Again, this helps to increase the value of my ISA.
With my monthly £600, I’m going to assume an average annual growth rate of 8%. This might seem generous, but if I tilt my ISA towards growth stocks and high-yield income payers, it’s not unrealistic. With this forecast, I’d potentially reach £1m in just over three decades.
Factors to remember
Three decades might seem a long time, and it is. However, there are so many factors that could speed this up (or slow it down).
If the market goes through a prolonged crash with a deep economic recession, this could slow down the progress of my ISA. My average annual growth rate would drop or could even go into reverse.
On the other hand, I’d expect to earn a lot more money years down the line. So I could increase £600 a month to £1,000 a month or even more. This would dramatically cut down the time down.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
